Avoiding COVID-19 Related Foreclosures by Implementing Cost-Effective Mortgage Modifications for Federally-Backed Loans

54 Pages Posted: 26 May 2021

See all articles by Kanav Bhagat

Kanav Bhagat

Housing Risk and Policy Advisors; JP Morgan Chase Institute

Date Written: March 25, 2021

Abstract

Millions of homeowners are having difficulty paying their mortgage because of the COVID-19 emergency, and those suffering from a sustained income loss will be unable to afford their original monthly payments. Research based on post-Great Recession defaults provide compelling evidence that a mortgage modification that delivers substantial payment reduction is the right tool to keep borrowers in their home and avoid foreclosures. Based on this research, I establish the steps of an “optimized” mortgage modification waterfall that offers substantial payment reduction to the borrower while minimizing the financial impact on the lender. I then compare the optimized waterfall to the GSE, FHA, and VA mortgage modification options and provide specific recommendations that, if implemented, would allow the Federal agencies to offer deeper payment reductions and broaden the availability to modifications to help more homeowners in need while minimizing the cost to lenders.

Keywords: mortgage, mortgage default, debt relief, homeowners

JEL Classification: G51

Suggested Citation

Bhagat, Kanav, Avoiding COVID-19 Related Foreclosures by Implementing Cost-Effective Mortgage Modifications for Federally-Backed Loans (March 25, 2021). Available at SSRN: https://ssrn.com/abstract=3849054 or http://dx.doi.org/10.2139/ssrn.3849054

Kanav Bhagat (Contact Author)

Housing Risk and Policy Advisors ( email )

Glenford, NY
United States

JP Morgan Chase Institute ( email )

Glenford, NY
United States

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